-- $7.99 Each for Streaming and DVDs
-- Is Netflix Turning into an Ugly Duckling?
Netflix has in effect almost doubled its monthly rates for most subscribers by splitting its streaming and DVD rental plans:
Service Monthly Rate in $Streaming only but no DVDs 7.99, the same as now1 DVD at a time, no streaming 7.992 DVDs at a time, no streaming 11.99Streaming and 1 DVD at a time 15.98
Netflix no longer offers a plan that includes both unlimited streaming and DVDs. The prior combination plan for both streaming and DVDs was $9.99 a month.
The changes are effective immediately for new subscribers and September 1 for existing subscribers. It's the fifth rate change in Netflix' history.
Netflix said it made the change because it realized that that "there is still a very large continuing demand for DVDs both from our existing members as well as non-members." It could have anticipated that by its inability to offer much of its content by streaming. Netflix has too many DVD-only videos to make the streaming only service worthwhile for many members.
It said the $2 add-on for DVDs "neither makes great financial sense nor satisfies people who just want DVDs." The DVD business is a "long-term business," it said, perhaps realizing how reluctant many content owners are to having their content streamed as part of a fixedfee subscription. They may want to charge more for streaming than Netflix can justify.
Reflecting the reality that DVDs are a long-term business, it set up a separate management team solely focused on DVDs by mail. Andy Rendich, chief service and operations officer at Netflix, will head up the operation. It did not say whether Rendich will spend full time on the DVD operations or would continue some of his prior duties.
In the end, the price increase reflects the realities of the market place and that many content owners are reluctant to make their goodies available on a subscription streaming service--unless their cut was increased. If Netflix could get all the DVD content that it has on streaming, it would not have been making the change.
Because so much Netflix content is available on DVD only, the move almost doubles the monthly rental for most subscribers and makes it harder to justify using Netflix instead of a premium pay-TV service like Showtime, Starz or HBO. Many users, if they don't cancel completely, may cancel the streaming service and get the DVD-only service because that gives them everything Netflix offers.
Netflix has become a modern phenomenon. The Internet is now "the Netflix channel" in North America. It accounts for 22% of all North American Internet traffic, 30% at peak viewing times. YouTube only accounts for 8% and traditional Web pages account for 17%.
Netflix' Rising Content Costs
Perhaps explaining Netflix' increase in rates is a report from CNN that Michael Pachter, an analyst at Wedbush Securities, says Netflix faces some substantial content cost increases in the next two years.
Pachter said Netflix' content costs could inflate from $180 million in 2010 to $1.98 billion in 2012. "Netflix has another year or two on most of these contracts, and then the game completely changes," Pachter said. "The content owners realize they can't give Netflix all the leverage. Netflix had the power when they were the only bidder. But you don't have as much leverage when you suddenly have competition."
The big one facing Netflix is the renewal of its deal with Starz.
The price increase will work for Netflix if it allows it to obtain more streaming content.
Subscriber Revolt
Within 24 hours of announcing the price increase, some 40,000 purported subscribers had protested on Facebook. It's a small number in comparison to the 23 million Netflix subscribers but the fever may presage a revolt. We won't know until Netflix announces its current subscriber numbers. The price change does not impact the streaming only subscribers, which includes all of Canada.
What choice do Netflix subscribers have other than picking one or the other service or anteing up for both? No one else offers a comparable service. The Hulu Plus service is on far fewer devices and has far fewer movies. iTunes, CinemaNow and Walmart's Vudu, are purchase or short-term rental only.
Amazon Prime is a possibility with its 6,000 or so movies and TV shows but it too is on far fewer devices. Amazon showed 1,998 movies and documentaries as being available this week.
The service costs $79 per year compared to $96 for Netflix and Hulu Plus. DVDs are not included, of course. It includes free two-day shipping on all Amazon orders.
In addition to being on PCs and Macs it's available, according to Amazon, on 200 models of Internet-connected and smart devices including Roku and Google TV. But not Apple TV, of course.
Still, the Netflix price increases may prompt some of its subscribers to seriously consider Amazon.
Another Looming Price Increase for Netflix Subscribers
Netflix price increases may actually prompt more subscribers to opt for the streaming only option, increasing the amount of bandwidth they consume.
The Wall Street Journal warns about a potentially bigger threat to Netflix in terms of increasing its or its subscribers' costs: the very real possibility that the broadband service providers will start charging by usage as the cellcos are doing. It's inevitable. Netflix' best chance might be to buy large blocks of broadband from the service providers so its customers don't have to pay higher monthly fees. Instead their Netflix usage would be excluded from the monthly computation.
Netflix isn't the only one benefitting from low-cost broadband--in effect unlimited free usage. So are Hulu, Amazon, Google, Apple, Pandora, and Microsoft with its Skype video phone service and other online media services.
Time Warner Cable chairman Glenn Britt is quoted by the Journal as saying "it's inevitable that there will be a consumption dimension" to broadband pricing. He's of course currently in a lose-lose situation, as are all the cablecos and telcos, because they lose eyeballs when consumers are watching Netflix and they lose data capacity to the OTT video streams.
AT&T was the first to stick its foot into the usage waters. Its U-Verse broadband subscribers get 250GBs per month included in the monthly rate. Over that amount they pay $10 per 50GBs.
The Journal calls the broadband usage factor a sleeper that Netflix, its subscribers and investors can't overlook. The broadband service providers have to be careful they don't drive Netflix subscribers back to DVDs. There's a Redbox with lots of them seemingly on every corner. And instead of two separate Netflix subscriptions, a Netflix and a Hulu Plus subscription might make more sense at about the same monthly price.
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